If the demand for a good is price inelastic, a tax on it will
A) raise price, raise tax revenue, shift the supply curve to the right
B) lower price, lower tax revenue, shift the supply curve to the right
C) Raise price, raise tax revenue, shift the supply curve to the right
D) raise price, raise tax revenue, shift the supply curve to the left
E) Lower price, raise tax revenue, shift the demand curve to the left

Question

Quizplus · Accepted Answer

When demand is price inelastic, a tax on the good will raise the price and increase tax revenue because consumers are less sensitive to price changes and will continue to buy the product. The imposition of a tax effectively decreases the supply of the good, which is represented by a leftward shift of the supply curve, not a rightward shift.

If the Demand for a Good Is Price Inelastic, a Tax